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13 Aug, 2019 08:36

Currency wars: Beijing says it won’t weaponize yuan in US trade conflict

Currency wars: Beijing says it won’t weaponize yuan in US trade conflict

China has pledged not to depreciate the yuan’s exchange rate after Washington officially labeled Beijing a currency manipulator amid the escalation of the trade conflict between the world’s two biggest economies.

The People’s Bank of China, the nation’s central bank, fixed the yuan’s midpoint reference at 7.0326 per dollar on Tuesday. It was the fourth consecutive session in which the Chinese currency was below the psychologically important 7-yuan-per-dollar level.

The yuan fell in the beginning of last week, reaching the lowest level since December 2008. Washington was quick to accuse China of deliberately devaluating the yuan and designating the trade war rival a currency manipulator – a claim that Beijing has repeatedly denied.

In an article for the Financial News, a central bank-backed newspaper, the vice governor with the People’s Bank of China and head of China’s State Administration of Foreign Exchange, Pan Gongsheng, refuted the US’ allegation once again, calling it a “political operation” that will be remembered as “a ridiculous case in global finance history.”

The official said the recent drop was a “spontaneous stress response” to threats of more tariffs, announced earlier by US President Donald Trump. On August 1, Trump threatened to impose a 10-percent tariff on the remaining $300 billion of Chinese imports on top of the $250 billion of Chinese goods already taxed at 25 percent.

“The yuan is still a strong currency,” Pan wrote, adding that he does not expect any “disorderly depreciation down the road” in spite of trade frictions. “We will not engage in a competitive devaluation and won’t use the exchange rate as a tool to handle international trade disputes.”

The yuan’s weakening last week resulted in the biggest drop in US stocks this year. Investors were spooked as flaring tensions between China and the US accompanied by a depreciating yuan “left the impression that currencies and the international monetary and financial system, too, is going to be sucked into the war,” Sourabh Gupta, a senior fellow at the Institute for China-America Studies in Washington, told RT.

Also on rt.com US-China trade war may soon become a currency war, strategist warns

The analyst explained that while Beijing may enjoy some temporary benefits from the weakening of the renminbi, from a longer-term macro perspective, China wants its currency stable and to appreciate gradually.

“China after all wishes to internationalize and ‘harden’ its currency, and internationalization won’t be achieved with a depreciating currency,” Gupta wrote. He added that now the Chinese currency is trading lower on a fair market basis thank to the ongoing trade war. But at the same time, this exchange rate “also serves temporarily as a useful pressure point [against the US].”

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